Tiomarkets Daily Commentary 4 Feb.2020

First of all my apologies for the lack of commentary yesterday - a minor technical issue! But back on board today and its more of the same. Friday saw equity markets plunge on coronavirus fears with yesterday seeing somewhat of a pull back. For FX and commodities it was a case of follow equities with JPY crosses and XAU heading in opposite directions. Tuesday would begin with the WHO declaring that the coronavirus is not a pandemic which, for now, has calmed market nerves. The result would be a global rally in stocks which saw even Chinese stocks in the green. Europe would follow suit with the DAX closing up 1.8%. US equity futures suggested similar gains in the US.

The early focus for FX would be the Reserve Bank of Australia (RBA) interest rate decision. Many had pondered if a rate cut would now be on the cards after the terrible wildfires across the nation and the potential drag on the economy. Keep in mind China is by far and away the largest trading partner for Australia and the ongoing crisis there could potentially have negative connotations for the domestic economy. All this considered, the RBA decided to keep rates where they are, which saw AUD immediately jump from 0.6685 to 0.6739 against the USD. For JPY crosses the equity market rally would mean a push north, taking USDJPY from 108.55 to 109.54 and EURJPY finally breaking its recent 60-point range to rally to 120.98. EURUSD would be the quietest of the major currencies drifting down to 1.1033 from 1.1064 while GBP continued its roller-coaster ride, initially dropping to 1.2942 before better than expected Construction PMI data saw a squeeze higher to 1.3046. XAU would be the big loser, dropping from 1,579 to 1,549. Wall Street would follow on from Europe with the DJ up 500 points at one point although would close up just over 400 points. The S&P and Nasdaq would register even more impressive percentage gains, with the latter up 2.1%. Once again all is well with the world. For today at least!

I like to revisit previous charts, whether right or wrong. And given the only suggestion I usually make is ‘it’s up to you how to play it’, I can be neither right nor wrong!. Today XAU suffered some significant losses as equity markets rallied around the world. The hourly chart I threw up a few sessions ago was showing a decent upward trend line with at least 3 sharp dips touching the line but going no further. Then of course today happened and it collapsed like a knife through butter. Hindsight is a beautiful thing, but looking at this set up it allows us to have a think about how best we could have traded against that support line, not only above it, but also on the break of it. In the bigger picture major support still lies just above 1,535. Keep an on that level if this equity market surge continues.